WillScot Holdings Corp 10-Q

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand WillScot Mobile Mini Holdings Corp. ("WillScot Mobile Mini"), our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and the accompanying notes thereto, contained in Part I, Item 1 of this report. The discussion of results of operations in this MD&A is presented on a historical basis, as of or for the three and six months ended June 30, 2023 or prior periods. On September 30, 2022, the Company completed the sale of its former Tank and Pump Solutions ("Tank and Pump") segment. On January 31, 2023, the Company completed the sale of its former United Kingdom ("UK") Storage Solutions segment. This MD&A presents the historical financial results of the former Tank and Pump segment and the former UK Storage Solutions segment as discontinued operations for all periods presented. The consolidated financial statements were prepared in conformity with accounting principles generally accepted in the US (“GAAP”). We use certain non-GAAP financial metrics to supplement the GAAP reported results to highlight key operational metrics that are used by management to evaluate Company performance. Reconciliations of GAAP financial information to the disclosed non-GAAP measures are provided in the Reconciliation of Non-GAAP Financial Measures section. Executive Summary and Outlook We are a leading business services provider specializing in innovative flexible work space and portable storage solutions. We service diverse end markets across all sectors of the economy throughout the United States ("US"), Canada, and Mexico. As of June 30, 2023, our branch network included approximately 240 branch locations and additional drop lots to service our over 85,000 customers. We offer our customers an extensive selection of “Ready to Work” modular space and portable storage solutions with over 155,000 modular space units and over 211,000 portable storage units in our fleet. We primarily lease, rather than sell, our modular and portable storage units to customers, which results in a highly diversified and predictable reoccurring revenue stream. Over 90% of new lease orders are on our standard lease agreement, pre-negotiated master lease or national account agreements. The initial lease periods vary, and our leases are customarily renewable on a month-to-month basis after their initial term. Our lease revenue is highly predictable due to its reoccurring nature and the underlying stability and diversification of our lease portfolio. Furthermore, given that our customers value flexibility, they consistently extend their leases or renew on a month-to-month basis such that the average effective duration of our lease portfolio, excluding seasonal portable storage units, is approximately 34 months. We complement our core leasing business by selling both new and used units, allowing us to leverage scale, achieve purchasing benefits and redeploy capital employed in our lease fleet. Our customers operate in a diversified set of end markets, including construction, commercial and industrial, retail and wholesale trade, energy and natural resources, education, government and institutions and healthcare. Core to our operating model is the ability to redeploy standardized assets across end markets. We track several market leading indicators to predict demand, including those related to our two largest end markets, the commercial and industrial sector and the construction sector, which collectively accounted for approximately 88% of our revenues in the six months ended June 30, 2023. We remain focused on our core priorities of growing leasing revenues by increasing units on rent, both organically and through our acquisition strategy, delivering “Ready to Work” solutions to our customers with value added products and services ("VAPS"), and on continually improving the overall customer experience. Significant Developments Customer Relationship Management ("CRM") System On February 6, 2023, we successfully completed the harmonization of our separate Modular and Storage CRM systems onto a single unified system. With this enhanced platform, we have a combined view of our customers and projects across the entire sales team. Going forward, we will focus on productivity management and building a more targeted and predictive approach to anticipate and service customer demand, with continued improvement in engagement and outreach underpinned by our data warehouse. Divestiture On January 31, 2023, we completed the sale of our former UK Storage Solutions segment for total cash consideration of $418.1 million. Proceeds from the sale were used to support ongoing reinvestment in our Modular and Storage operating segments in North America and other capital allocation priorities. 31 Reportable Segments Following the divestitures of the UK Storage Solutions and Tank and Pump segments, we operate in two reporting segments: Modular Solutions ("Modular") and Storage Solutions ("Storage"). The reporting segments are aligned with how we operate and analyze our business results. During the first quarter of 2023, the ground level office business within the Modular segment was transferred to the Storage segment, and associated revenues, expenses, and operating metrics were transferred to the Storage segment. All periods presented have been retrospectively revised to reflect this adjustment within the Modular and Storage segments. For the twelve months ended December 31, 2022, this resulted in approximately $49.8 million of revenue and $28.5 million of gross profit being transferred from the Modular segment to the Storage segment. Asset Acquisitions During the six months ended June 30, 2023, we acquired certain assets and liabilities of five regional and local storage and modular companies, which consisted primarily of approximately 1,800 storage units and 700 modular units, for $149.4 million in cash, net of cash acquired. The accompanying consolidated financial statements include $147.9 million of rental equipment and $4.5 million of land held for sale as a result of these acquisitions. Share Repurchases During the six months ended June 30, 2023 , we repurchased 9,995,319 shares of Common Stock for $454.9 million. As of June 30, 2023, $854.1 million of the approved share repurchase pool remained available. Given the predictability of our free cash flow, we believe that repurchases will be a reoccurring capital allocation priority. Inflation and Supply Chain Issues Similar to many other organizations, we have faced inflationary pressures over the past several years across most of our input costs such as building materials, labor, transportation and fuel. Inflation has contributed to increased capital costs both for new units as well as for refurbishment of our existing units. However, given our scale and our strong rate performance, we believe we have been able to navigate the inflationary environment well and have consistently driven margin improvements during this period of rising costs. Additionally, because we derive the majority of our revenue from leasing our existing lease fleet units to customers and our material purchases to maintain these units consist primarily of general building materials, we have not experienced significant supply chain issues to date. Second Quarter Highlights For the three months ended June 30, 2023, as compared to the three months ended June 30, 2022 unless otherwise noted, key drivers of our financial performance included: • Total revenues increased $59.2 million, or 11.3%. Leasing revenue increased $62.9 million, or 16.3%, delivery and installation revenue increased $1.9 million, or 1.7%, rental unit sales decreased $4.7 million, or 29.9%, and new unit sales revenue decreased $0.9 million, or 9.1%. Key leasing revenue drivers included: • Average portable storage units on rent decreased 10,301 units, or 6.3%, and average modular space units on rent decreased 3,529 units, or 3.4%. • Average modular space monthly rental rate increased $169, or 19.2%, to $1,051 driven by strong pricing performance across both segments. Average modular space monthly rental rates increased by $163, or 17.4%, in the Modular segment and by $167, or 25.0%, in the Storage segment. • Average portable storage monthly rental rate increased $48, or 27.0%, to $226 driven by increased pricing as a result of our price management tools and processes. • Average utilization for portable storage units decreased to 73.1% from 86.0% for the same period in 2022 driven by decreased demand in 2023 as compared to the same period in 2022. Average utilization for modular space units decreased 360 basis points ("bps") to 65.1%. • Modular segment revenue, which represented 63.7% of consolidated revenue for the three months ended June 30, 2023, increased $35.4 million, or 10.6%, to $370.7 million. The increase was driven by our core leasing revenue, which increased $39.6 million, or 16.4%, due to continued growth of pricing and VAPS, and by delivery and installation revenues, which increased $3.2 million, or 4.4%, driven by increased pricing. Rental unit sales decreased $6.2 million, or 46.3%, and new unit sales decreased $1.3 million, or 15.3%. Modular revenue drivers for the three months ended June 30, 2023 included: • Modular space average monthly rental rate of $1,102 increased 17.4% year over year representing a continuation of the long-term price optimization and VAPS penetration opportunities across our portfolio. • Average modular space units on rent decreased 497, or 0.6%, year over year. • Average modular space monthly utilization decreased 190 bps to 65.8% for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. • Storage segment revenue, which represented 36.3% of consolidated revenue for the three months ended June 30, 2023, increased $23.7 million, or 12.6%, to $211.4 million. The increase was driven by our core leasing revenue, which grew $23.3 million, or 16.1%, due to increased pricing, and was partially offset by lower units on rent volumes 32 and lower delivery and installation revenues, which decreased $1.3 million, or 3.3%. Rental unit sales increased $1.4 million, or 58.3%, and new unit sales increased $0.3 million, or 20.0%. Storage revenue drivers for the three months ended June 30, 2023 included: • Portable storage average monthly rental rate of $226 increased 27.0% year over year as a result of our price management tools and processes and early benefits from increased VAPS penetration opportunities. Modular space average monthly rental rate of $835 increased 25.0% year over year as a result of price optimization and increased VAPS penetration. • Average portable storage units on rent decreased 10,282, or 6.3%, year over year driven by lower demand during 2023 versus the high growth achieved in 2022. Average modular space units on rent decreased 3,032, or 13.6%, year over year. • Average portable storage monthly utilization decreased 12.9% to 73.2% for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. Average modular space monthly utilization decreased 10.4% to 62.3% for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022. • Generated income from continuing operations of $87.7 million for the three months ended June 30, 2023. Discrete costs in the period included $2.2 million of integration costs. • Generated Adjusted EBITDA from continuing operations of $261.3 million for the three months ended June 30, 2023, representing an increase of $52.7 million, or 25.3%, as compared to the same period in 2022. This increase was driven primarily by increased leasing and delivery and installation gross profit. • Adjusted EBITDA margin from continuing operations was 44.9% in the second quarter of 2023 and increased 500 bps versus prior year driven by continued expansion of all margin lines. Most significantly, delivery and installation margins increased 230 bps versus prior year and leasing margins increased 90 bps versus prior year both driven primarily by increased pricing. Additionally, selling, general, and administrative expenses included in Adjusted EBITDA decreased as a percentage of revenue by 260 bps versus 2022 driving the majority of the remaining margin expansion. • Net cash provided by operating activities increased $13.8 million to $202.2 million for the three months ended June 30, 2023 despite the divestitures of the Tank and Pump and UK Storage Segments. Net cash used in investing activities, excluding cash used as part of acquisitions, decreased by $76.3 million as a result of reduced refurbishment spending and decreased purchases of new fleet as a result of lower utilization. • Generated Free Cash Flow of $159.6 million for the three months ended June 30, 2023 representing an increase of $90.2 million as compared to the same period in 2022. This Free Cash Flow along with additional net borrowings under the ABL Facility (defined as receipts from borrowings, less repayment of borrowings from the condensed consolidated statement of cash flows) and proceeds of $404.3 million related to the sale of the former UK Storage Solutions segment, net of the settlement of a contingent foreign currency forward contract to sell £330.0 million upon the closing of the sale, were deployed to: • Acquire three regional and local storage and modular portfolios of approximately 1,500 storage units and 200 modular units for $69.8 million; and • Return $239.2 million to shareholders through stock repurchases, reducing outstanding Common Stock by 5,406,011 shares. • We believe the predictability of our free cash flow allows us to pursue multiple capital allocation priorities opportunistically, including investing in organic opportunities we see in the market, maintaining leverage in our stated range, opportunistically executing accretive acquisitions, and returning capital to shareholders. 33 Consolidated Results of Operations Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022 Our condensed consolidated statements of operations for the three months ended June 30, 2023 and 2022 are presented below. Three Months Ended June 30, 2023 vs. 2022 $ Change (in thousands) 2023 2022 Revenues: Leasing and services revenue: Leasing $ 449,320 $ 386,386 $ 62,934 Delivery and installation 112,754 110,841 1,913 Sales revenue: New units 9,004 9,927 (923) Rental units 11,011 15,736 (4,725) Total revenues 582,089 522,890 59,199 Costs: Costs of leasing and services: Leasing 98,556 88,111 10,445 Delivery and installation 81,349 82,537 (1,188) Costs of sales: New units 4,795 5,321 (526) Rental units 5,067 8,478 (3,411) Depreciation of rental equipment 64,450 63,230 1,220 Gross profit 327,872 275,213 52,659 Expenses: Selling, general and administrative 146,810 150,129 (3,319) Other depreciation and amortization 17,346 14,951 2,395 Currency losses (gains), net 14 (173) 187 Other income, net (2,838) (3,794) 956 Operating income 166,540 114,100 52,440 Interest expense 47,246 33,153 14,093 Income from continuing operations before income tax 119,294 80,947 38,347 Income tax expense from continuing operations 31,565 20,848 10,717 Income from continuing operations 87,729 60,099 27,630 Discontinued operations: Income from discontinued operations before income tax — 17,140 (17,140) Income tax expense from discontinued operations — 3,863 (3,863) Income from discontinued operations — 13,277 (13,277) Net income $ 87,729 $ 73,376 $ 14,353 Comparison of Three Months Ended June 30, 2023 and 2022 Revenue: Total revenue increased $59.2 million, or 11.3%, to $582.1 million for the three months ended June 30, 2023 from $522.9 million for the three months ended June 30, 2022. Leasing revenue increased $62.9 million, or 16.3%, as compared to the same period in 2022 driven by improved pricing and value added products penetration, partially offset by a decrease of 13,830 average total units on rent. Delivery and installation revenues increased $1.9 million, or 1.7%, due to increased pricing across both of our segments. Rental unit sales decreased $4.7 million, or 29.9%, and new unit sales decreased $0.9 million, or 9.1%. 34 Total average units on rent for the three months ended June 30, 2023 and 2022 were 254,554 and 268,384, respectively, representing a decrease of 13,830, or 5.2%. Portable storage average units on rent decreased by 10,301 units, or 6.3%, for the three months ended June 30, 2023 driven by lower demand in 2023 as compared to strong delivery and unit on rent growth in 2022. The average portable storage unit utilization rate during the three months ended June 30, 2023 was 73.1% as compared to 86.0% during the same period in 2022. Modular space average units on rent decreased 3,529 units, or 3.4%, for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022. The average modular space unit utilization rate during the three months ended June 30, 2023 was 65.1% as compared to 68.7% during the same period in 2022. Modular space average monthly rental rates increased 19.2% to $1,051 for the three months ended June 30, 2023. Average modular space monthly rental rates increased by $163, or 17.4%, to $1,102 in the Modular segment and by $167, or 25.0%, in the Storage segment. Increases were driven by a continuation of the long-term price optimization and VAPS penetration opportunities across our Modular segment as well as by application of these same price management tools and processes across the Storage segment. Average portable storage monthly rental rates increased 27.0% to $226 for the three months ended June 30, 2023 driven by our price management tools and processes and early benefits from increased VAPS penetration opportunities on our basic VAPS offerings in the Storage segment, which began in the second quarter of 2022. Gross Profit: Gross profit increased $52.7 million, or 19.1%, to $327.9 million for the three months ended June 30, 2023 from $275.2 million for the three months ended June 30, 2022. The increase in gross profit was a result of a $52.4 million increase in leasing gross profit and increased delivery and installation gross profit of $3.1 million, partially offset by decreased new and rental unit sales gross profit of $1.7 million. Increases were primarily a result of increased revenues due to favorable average monthly rental rates and delivery and installation pricing across both portable storage and modular space units, which offset lower unit on rent volumes. Cost of leasing and services increased by $9.3 million, or 5.4%, for the three months ended June 30, 2023 versus the three months ended June 30, 2022, driven by a $7.6 million, or 13.4%, increase in labor costs, a $2.8 million, or 11.6%, increase in material costs, and a $1.4 million, or 6.0%, increase in vehicle, equipment and other costs, partially offset by a $2.6 million, or 3.9%, decrease in subcontractor costs. Cost of sales decreased by $3.9 million, or 28.5%, which is in line with decreased sales revenues of 22.9% for the three months ended June 30, 2023, resulting in improved sales gross profit margins. The year over year changes in each of these cost components was consistent with historical trends and management's expectations given the respective change in sales volume and inflationary pressures impacting our business. Increases in gross profit were offset partially by increased depreciation of $1.2 million, or 1.9%, as a result of capital investments made over the past twelve months in rental equipment including acquired fleet. Our resulting gross profit percentage was 56.3% and 52.6% for the three months ended June 30, 2023 and 2022, respectively. Our gross profit percentage, excluding the effects of depreciation, was 67.4% and 64.7% for the three months ended June 30, 2023 and 2022, respectively. These increases were driven primarily by continued price optimization within leasing, delivery, and installation revenues and execution of VAPS penetration opportunities that have outpaced increases in cost of leasing and services. SG&A: Selling, general and administrative expense ("SG&A") decreased $3.3 million, or 2.2%, to $146.8 million for the three months ended June 30, 2023, compared to $150.1 million for the three months ended June 30, 2022. Integration expenses declined $3.0 million, or 56.8%, during the period and service agreements and professional fees decreased $1.5 million, or 6.8%. Employee SG&A excluding stock compensation decreased $5.9 million, or 8.6%, primarily as a result of reduced variable compensation. Real estate costs increased $2.1 million, or 11.6%, and non-income business taxes increased $1.0 million, or 53.0%, partially offsetting these declines. Other Depreciation and Amortization: Other depreciation and amortization increased $2.3 million to $17.3 million for the three months ended June 30, 2023 compared to $15.0 million for the three months ended June 30, 2022. The increase was driven by increased depreciation as a result of our recent investments in our CRM system and other infrastructure improvements across our branch network. Currency Losses (Gains), net: Currency losses, net increased by $0.2 million for the three months ended June 30, 2023. This change was primarily attributable to the impact of foreign currency exchanges rate changes on intercompany receivables and payables denominated in a currency other than the subsidiary's functional currency. Other Income, Net: Other income, net was $2.8 million for the three months ended June 30, 2023 compared to $3.8 million for the three months ended June 30, 2022. The decrease in other income, net was related to a decrease in insurance recoveries during 2023 as compared to 2022 related to hurricanes in the Gulf Coast and Florida areas of the United States. Interest Expense: Interest expense increased $14.0 million, or 42.2%, to $47.2 million for the three months ended June 30, 2023 from $33.2 million for the three months ended June 30, 2022. The increase in interest expense was a result of higher overall weighted average interest rates as a result of increased benchmark rates and higher outstanding debt balances. See Note 9 to the condensed consolidated financial statements for further discussion of our debt. Income Tax Expense: Income tax expense increased $10.8 million to $31.6 million for the three months ended June 30, 2023 compared to $20.8 million for the three months ended June 30, 2022. The increase in expense was driven by an 35 increase in income from continuing operations before income tax for the three months ended June 30, 2023 as compared to the three months ended June 30, 2022. Income from Discontinued Operations: Income from discontinued operations was related to the former UK Storage Solutions and Tank and Pump segments, which were sold in prior periods. Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022 Our condensed consolidated statements of operations for the six months ended June 30, 2023 and 2022 are presented below. Six Months Ended June 30, 2023 vs. 2022 $ Change (in thousands) 2023 2022 Revenues: Leasing and services revenue: Leasing $ 889,271 $ 737,945 $ 151,326 Delivery and installation 219,384 196,380 23,004 Sales revenue: New units 19,661 15,714 3,947 Rental units 19,241 24,022 (4,781) Total revenues 1,147,557 974,061 173,496 Costs: Costs of leasing and services: Leasing 196,071 168,445 27,626 Delivery and installation 156,356 153,117 3,239 Costs of sales: New units 11,003 9,077 1,926 Rental units 9,521 13,370 (3,849) Depreciation of rental equipment 123,606 120,778 2,828 Gross profit 651,000 509,274 141,726 Expenses: Selling, general and administrative 297,702 288,273 9,429 Other depreciation and amortization 34,519 30,313 4,206 Currency losses (gains), net 6,789 (36) 6,825 Other income, net (6,197) (5,077) (1,120) Operating income 318,187 195,801 122,386 Interest expense 92,112 63,723 28,389 Income from continuing operations before income tax 226,075 132,078 93,997 Income tax expense from continuing operations 62,075 32,931 29,144 Income from continuing operations 164,000 99,147 64,853 Discontinued operations: Income from discontinued operations before income tax 4,003 32,927 (28,924) Gain on sale of discontinued operations 176,078 — 176,078 Income tax expense from discontinued operations 45,468 7,527 37,941 Income from discontinued operations 134,613 25,400 109,213 Net income $ 298,613 $ 124,547 $ 174,066 36 Comparison of Six Months Ended June 30, 2023 and 2022 Revenue: Total revenue increased $173.5 million, or 17.8%, to $1,147.6 million for the six months ended June 30, 2023 from $974.1 million for the six months ended June 30, 2022. Leasing revenue increased $151.3 million, or 20.5%, as compared to the same period in 2022 driven by improved pricing and value added products penetration, partially offset by a decrease of 1,478 average modular space and portable storage units on rent. Delivery and installation revenues increased $23.0 million, or 11.7%, due to increased pricing across both of our segments. Rental unit sales decreased $4.8 million, or 19.9%, and new unit sales increased $3.9 million, or 25.1%. Total average units on rent for the six months ended June 30, 2023 and 2022 were 260,891 and 262,369, respectively. Modular space average units on rent decreased 2,480 units, or 2.4%, and portable storage average units on rent increased by 1,002 units, or 0.6%, for the six months ended June 30, 2023. The average modular space unit utilization rate during the six months ended June 30, 2023 was 65.6% as compared to 68.6% during the same period in 2022. The average portable storage unit utilization rate during the six months ended June 30, 2023 was 75.9%, as compared to 84.5% during the same period in 2022. Modular space average monthly rental rates increased 19.4% to $1,020 for the six months ended June 30, 2023. Average portable storage monthly rental rates increased 27.7% to $221 for the six months ended June 30, 2023. Increases were driven by a continuation of the long-term price optimization and VAPS penetration opportunities across our Modular segment as well as by application of these same price management tools and processes across the Storage segment and from early benefits from increased VAPS penetration opportunities on our basic VAPS offerings in the Storage segment, which began in the second quarter of 2022. Gross Profit: Gross profit increased $141.7 million, or 27.8%, to $651.0 million for the six months ended June 30, 2023 from $509.3 million for the six months ended June 30, 2022. The increase in gross profit is a result of a $123.7 million increase in leasing gross profit, increased delivery and installation gross profit of $19.8 million, and increased new and rental unit sale margins of $1.1 million. Increases were primarily a result of increased revenues due to favorable average monthly rental rates and delivery and installation pricing across both portable storage and modular space units, which offset lower unit on rent volumes. Cost of leasing and services increased by $30.9 million, or 9.6%, for the six months ended June 30, 2023 versus the six months ended June 30, 2022, driven by a $15.0 million, or 13.6%, increase in labor costs, an $8.5 million, or 19.1%, increase in material costs, a $4.0 million, or 3.3%, increase in subcontractor costs, and a $3.4 million, or 7.5%, increase in vehicle, equipment and other costs. Cost of sales decreased by $1.9 million, or 8.6%, which is in line with decreased sales revenues of 2.3% for the six months ended June 30, 2023, resulting in improved sales gross profit margins. The year over year changes in each of these cost components was consistent with historical trends and management's expectations given the respective change in sales volume and inflationary pressures impacting our business. Depreciation increased to $123.6 million as a result of capital investments made over the past twelve months in rental equipment including acquired fleet. Our gross profit percentage was 56.7% and 52.3% for the six months ended June 30, 2023 and 2022, respectively. Our gross profit percentage, excluding the effects of depreciation, was 67.5% and 64.7% for the six months ended June 30, 2023 and 2022, respectively. These increases were driven primarily by continued price optimization within leasing, delivery, and installation revenues and execution of VAPS penetration opportunities that have outpaced increases in cost of leasing and services. SG&A: Selling, general and administrative expense ("SG&A") increased $9.4 million, or 3.3%, to $297.7 million for the six months ended June 30, 2023, compared to $288.3 million for the six months ended June 30, 2022. Real estate costs increased $4.2 million, or 11.4%, travel expenses increased $4.2 million, or 42.4%, due to increased travel and training, non-income business taxes increased $2.2 million, or 53.2%, and our provision for credit losses increased $3.2 million, or 48.8%. Stock compensation expense increased $2.1 million to $17.5 million for the six months ended June 30, 2023, compared to $15.4 million for the six months ended June 30, 2022. Partially offsetting these increases, integration expenses declined $3.2 million, or 34.1%, during the period and service agreements and professional fees decreased $2.7 million, or 6.7%. Employee SG&A excluding stock compensation decreased $2.0 million, or 1.5%, primarily as a result of reduced variable compensation. Other Depreciation and Amortization: Other depreciation and amortization increased $4.2 million to $34.5 million for the six months ended June 30, 2023 compared to $30.3 million for the six months ended June 30, 2022. The increase was driven by increased depreciation as a result of our recent investments in our CRM system and other infrastructure improvements across our branch network. Currency (Gains) Losses, Net: Currency losses, net increased by $6.8 million to a $6.8 million loss for the six months ended June 30, 2023. This change was primarily attributable to a loss on the settlement of the contingent foreign currency forward contract relating to the sale of the former UK Storage Solutions segment. Other Income, Net: Other income, net was $6.2 million for the six months ended June 30, 2023 compared to $5.1 million for the six months ended June 30, 2022. The increase in other income, net was related to an increase in insurance recoveries during the six months ended 2023 as compared to the six months ended 2022 related to hurricanes in the Gulf Coast and Florida areas of the United States. 37 Interest Expense: Interest expense increased $28.4 million to $92.1 million for the six months ended June 30, 2023 from $63.7 million for the six months ended June 30, 2022. The increase in interest expense was a result of higher overall weighted average interest rates as a result of increased benchmark rates and higher outstanding debt balances. See Note 9 to the condensed consolidated financial statements for further discussion of our debt. Income Tax Expense: Income tax expense increased $29.1 million to expense of $62.1 million for the six months ended June 30, 2023 compared to $32.9 million for the six months ended June 30, 2022. The increase in expense was driven by an increase in income from continuing operations before income tax for the six months ended June 30, 2023 as compared to the six months ended June 30, 2022. Income from Discontinued Operations: Income from discontinued operations increased $109.2 million to $134.6 million for the six months ended June 30, 2023 compared to $25.4 million for the six months ended June 30, 2022. The increase in income from discontinued operations was driven by the gain on sale of the former UK Storage Solutions segment of $176.1 million, partially offset by an increase in income tax expense from discontinued operations as well as having no contribution from the former Tank and Pump segment in 2023. Business Segment Results The Company operates in two reportable segments as follows: Modular and Storage. Modular represents the activities of the North American modular business, excluding ground level offices, which were transferred to the Storage segment during the first quarter of 2023. Storage represents the activities of the North American portable storage and ground level office business. As part of the transfer of the ground level offices to Storage, we also adjusted the average modular space monthly rental rate in the Storage segment to only include VAPS specifically applicable to ground level offices, which has also been reflected in the total average modular space monthly rental rate. The following tables and discussion summarize our reportable segment financial information for the six months ended June 30, 2023 and 2022. Comparison of Three Months Ended June 30, 2023 and 2022 Three Months Ended June 30, 2023 (in thousands, except for units on rent and rates) Modular Storage Total Revenue $ 370,675 $ 211,414 $ 582,089 Gross profit $ 172,740 $ 155,132 $ 327,872 Adjusted EBITDA from continuing operations $ 151,443 $ 109,898 $ 261,341 Capital expenditures for rental equipment $ 50,371 $ 5,210 $ 55,581 Average modular space units on rent 81,886 19,200 101,086 Average modular space utilization rate 65.8 % 62.3 % 65.1 % Average modular space monthly rental rate $ 1,102 $ 835 $ 1,051 Average portable storage units on rent 457 153,011 153,468 Average portable storage utilization rate 58.0 % 73.2 % 73.1 % Average portable storage monthly rental rate $ 238 $ 226 $ 226 Three Months Ended June 30, 2022 (in thousands, except for units on rent and rates) Modular Storage Total Revenue $ 335,254 $ 187,636 $ 522,890 Gross profit $ 146,611 $ 128,602 $ 275,213 Adjusted EBITDA from continuing operations $ 122,824 $ 85,819 $ 208,643 Capital expenditures for rental equipment $ 82,482 $ 34,282 $ 116,764 Average modular space units on rent 82,383 22,232 104,615 Average modular space utilization rate 67.7 % 72.7 % 68.7 % Average modular space monthly rental rate $ 939 $ 668 $ 882 Average portable storage units on rent 476 163,293 163,769 Average portable storage utilization rate 53.7 % 86.1 % 86.0 % Average portable storage monthly rental rate $ 211 $ 178 $ 178 38 Modular Revenue: Total revenue increased $35.4 million, or 10.6%, to $370.7 million for the three months ended June 30, 2023 from $335.3 million for the three months ended June 30, 2022. The increase was primarily the result of a $39.6 million, or 16.4%, increase in leasing revenue and a $3.2 million, or 4.4%, increase in delivery and installation revenue driven by improved pricing, partially offset by a decrease of $6.2 million, or 46.3%, in rental unit sales revenue and a $1.3 million, or 15.3%, decrease in new unit sales. Average modular space monthly rental rates increased 17.4% for the three months ended June 30, 2023 to $1,102 driven by the continuation of the long-term price optimization and VAPS penetration opportunities across our portfolio. Average modular space units on rent decreased by 497 units, or 0.6%, year over year. Gross Profit: Gross profit increased $26.1 million, or 17.8%, to $172.7 million for the three months ended June 30, 2023 from $146.6 million for the three months ended June 30, 2022. The increase in gross profit was driven by higher leasing gross profit, which increased $27.7 million, or 15.7%, driven by improved pricing including VAPS. The increase in gross profit from leasing for the three months ended June 30, 2023 was further complemented by a $2.3 million increase in delivery and installation gross profit driven by increased pricing ahead of inflationary cost increases, and partially offset by a $2.4 million decrease in rental unit sales gross profit and a $1.0 million decrease in new unit sales gross profit. Cost of leasing and services increased by $12.8 million, or 10.4%, for the three months ended June 30, 2023 versus the three months ended June 30, 2022, driven by a $4.4 million, or 25.2%, increase in material costs, a $5.9 million, or 14.9%, increase in labor costs, a $1.6 million, or 3.1%, increase in subcontractor costs, and a $0.9 million, or 6.6%, increase in vehicle, equipment and other costs. Cost of sales decreased by $4.0 million, or 36.5%, which is in line with expected costs to deliver decreased sales revenues of 34.2% for three months ended June 30, 2023, resulting in improved sales gross profit margins. The year over year changes in each of these cost components was consistent with historical trends and management's expectations given the respective change in sales volume and inflationary pressures impacting our business. Increases in gross profit were offset partially by increased depreciation of $0.5 million, or 0.9%, as a result of capital investments made over the past twelve months in rental equipment including acquired fleet. Adjusted EBITDA: Adjusted EBITDA increased $28.6 million, or 23.3%, to $151.4 million for the three months ended June 30, 2023 from $122.8 million for the three months ended June 30, 2022. The increase was primarily driven by higher leasing and delivery and installation gross profit discussed above. SG&A, excluding discrete items, decreased $3.0 million, or 3.6%, for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022 driven primarily by decreased variable compensation costs. Capital Expenditures for Rental Equipment: Purchases of rental equipment and refurbishments decreased $32.1 million, or 38.9%, to $50.4 million for the three months ended June 30, 2023 from $82.5 million for the three months ended June 30, 2022 driven by successful efforts to reduce our refurbishment costs through better unit selection and work scope during 2023. Storage Revenue: Total revenue increased $23.8 million, or 12.7%, to $211.4 million for the three months ended June 30, 2023 from $187.6 million for the three months ended June 30, 2022. The increase was primarily the result of a $23.3 million, or 16.1%, increase in leasing revenue. Sales revenues increased $1.7 million, or 43.6%. These increases were partially offset by a $1.3 million, or 3.3%, decrease in delivery and installation revenue driven by lower volumes during the period. Average portable storage monthly rental rates increased 27.0% for the three months ended June 30, 2023 to $226 driven by our price management tools and processes and early benefits from increased VAPS penetration opportunities on our basic VAPS offerings, which began in the second quarter of 2022. Average portable storage units on rent decreased by 10,282 units, or 6.3%, year over year driven by lower demand in 2023 versus very strong demand in 2022. Average modular space monthly rental rates increased 25.0% year-over-year driven primarily by increased pricing on new deliveries; however, average units on rent decreased 13.6% driven by lower demand. Gross Profit: Gross profit increased by $26.5 million, or 20.6%, to $155.1 million for the three months ended June 30, 2023 compared to $128.6 million for the three months ended June 30, 2022. Gross profit on leasing activity increased by $24.8 million year over year driven by increased pricing as described above. Delivery and installation gross profit increased $0.8 million, or 6.1%, driven by increased pricing ahead of inflationary cost increases. Sales gross profit increased by $1.6 million to $2.8 million. Cost of leasing and services decreased by $3.6 million, or 7.5%, for the three months ended June 30, 2023 versus the three months ended June 30, 2022, driven by a $4.2 million, or 30.9%, decrease in subcontractor costs and a $1.6 million, or 25.2%, decrease in material costs, partially offset by a $1.7 million, or 9.9%, increase in labor costs and a $0.5 million, or 5.3%, increase in vehicle, equipment and other costs. Net reductions were largely driven by lower volumes during the period. Cost of sales increased by $0.1 million, or 3.8%, driven by improved sales gross profit margins on increased sales revenues of 43.6% for three months ended June 30, 2023. The year over year changes in each of these cost components was consistent with historical trends and management's expectations given the respective changes in sales volume and inflationary pressures impacting our business. These increases were offset partially by increased depreciation of $0.7 million, or 8.1%, as a result of capital investments made over the past twelve months in rental equipment including acquired fleet. Adjusted EBITDA: Adjusted EBITDA increased $24.1 million, or 28.1%, to $109.9 million for the three months ended June 30, 2023 from $85.8 million for the three months ended June 30, 2022 and the margin expanded to 52.0% from 45.7% as a result of favorable pricing on units and on delivery and installation, and increased VAPS penetration. The increase in 39 Adjusted EBITDA was driven primarily by increased leasing gross profit as described above, partially offset by increased SG&A. SG&A, excluding discrete items, increased $2.2 million, or 4.2%, for the three months ended June 30, 2023, as compared to the three months ended June 30, 2022 driven primarily by an increase to the provision for credit losses and higher real estate costs. Capital Expenditures for Rental Equipment: Purchases of rental equipment and refurbishments of $5.2 million for the three months ended June 30, 2023 were $29.1 million lower than the prior-year quarter driven by a reduction in new container purchases during 2023 given current utilization and the significant investments made in 2022. Comparison of the Six Months Ended June 30, 2023 and 2022 Six Months Ended June 30, 2023 (in thousands, except for units on rent and rates) Modular Storage Total Revenue $ 720,345 $ 427,212 $ 1,147,557 Gross profit $ 338,075 $ 312,925 $ 651,000 Adjusted EBITDA from continuing operations $ 288,407 $ 219,776 $ 508,183 Capital expenditures for rental equipment $ 89,783 $ 12,555 $ 102,338 Average modular space units on rent 81,894 19,717 101,611 Average modular space utilization rate 66.0 % 63.8 % 65.6 % Average modular space monthly rental rate $ 1,074 $ 796 $ 1,020 Average portable storage units on rent 479 158,801 159,280 Average portable storage utilization rate 60.1 % 76.0 % 75.9 % Average portable storage monthly rental rate $ 227 $ 221 $ 221 Six Months Ended June 30, 2022 (in thousands, except for units on rent and rates) Modular Storage Total Revenue $ 623,801 $ 350,260 $ 974,061 Gross profit $ 269,209 $ 240,065 $ 509,274 Adjusted EBITDA from continuing operations $ 222,410 $ 154,006 $ 376,416 Capital expenditures for rental equipment $ 140,059 $ 54,453 $ 194,512 Average modular space units on rent 81,533 22,558 104,091 Average modular space utilization rate 67.3 % 73.8 % 68.6 % Average modular space monthly rental rate $ 917 $ 626 $ 854 Average portable storage units on rent 469 157,809 158,278 Average portable storage utilization rate 53.1 % 84.7 % 84.5 % Average portable storage monthly rental rate $ 186 $ 173 $ 173 Modular Revenue: Total revenue increased $96.6 million, or 15.5%, to $720.4 million for the six months ended June 30, 2023 from $623.8 million for the six months ended June 30, 2022. The increase was primarily the result of a $85.6 million, or 18.4%, increase in leasing revenue and a $13.7 million, or 10.8%, increase in delivery and installation revenue. Average portable storage monthly rental rates increased 22.0% for the six months ended June 30, 2023 to $227 driven by our price management tools and processes and early benefits from increased VAPS penetration opportunities on our basic VAPS offerings, which began in the second quarter of 2022. Average modular space monthly rental rates increased 17.1% year-over-year to $1,074 driven primarily by increased pricing on new deliveries. Average units on rent also increased 361 units, or 0.4%. Gross Profit: Gross profit increased $68.9 million, or 25.6%, to $338.1 million for the six months ended June 30, 2023 from $269.2 million for the six months ended June 30, 2022. The increase in gross profit was driven by higher leasing gross profit, which increased $61.5 million, or 18.2%, driven by improved pricing including VAPS, and a $9.2 million increase in delivery and installation gross profit. These increases in gross profit from leasing for the six months ended June 30, 2023 were further complemented by a $0.8 million increase in new unit sales gross profit, and slightly offset by a $1.8 million decrease in rental unit sales gross profit. Cost of leasing and services increased by $28.7 million, or 12.3%, for the six months ended June 30, 2023 versus the six months ended June 30, 2022, driven by a $9.9 million, or 29.9%, increase in material costs, a $11.1 million, or 14.7%, increase in labor costs, a $5.7 million, or 5.8%, increase in subcontractor costs, and a $1.9 million, or 7.4%, 40 increase in vehicle, equipment and other costs. Cost of sales decreased by $1.7 million, or 9.6%, which is in line with expected costs to deliver decreased sales revenues of 8.3% for six months ended June 30, 2023, resulting in improved sales gross profit margins. The year over year changes in each of these cost components was consistent with historical trends and management's expectations given the respective change in sales volume and inflationary pressures impacting our business. Increases in gross profit were offset partially by a $0.7 million increase in depreciation of rental equipment related to capital investments made in our existing rental equipment including acquired fleet. Adjusted EBITDA: Adjusted EBITDA increased $66.0 million, or 29.7%, to $288.4 million for the six months ended June 30, 2023 from $222.4 million for the six months ended June 30, 2022. The increase was driven by higher leasing gross profit discussed above. SG&A, excluding discrete items, increased $4.2 million, or 2.7%, for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022 driven primarily by increased travel and training costs, higher real estate costs, and increased salaries, partially offset by lower variable compensation. Capital Expenditures for Rental Equipment: Purchases of rental equipment and refurbishments decreased $50.3 million, or 35.9%, to $89.8 million for the six months ended June 30, 2023 from $140.1 million for the six months ended June 30, 2022. Storage Revenue: Total revenue increased $76.9 million, or 22.0%, to $427.2 million for the six months ended June 30, 2023 from $350.3 million for the six months ended June 30, 2022. The increase was primarily the result of a $65.8 million, or 24.1%, increase in leasing revenue and a $9.3 million, or 13.3%, increase in delivery and installation revenue. Sales revenues increased $1.8 million, or 25.4%. Average portable storage monthly rental rates increased 27.7% year-over-year for the six months ended June 30, 2023 to $221 driven by our price management tools and processes and early benefits from increased VAPS penetration opportunities on our basic VAPS offerings, which began in the second quarter of 2022. Average portable storage units on rent increased by 992 units, or 0.6%, year over year driven by unit growth in 2022. Average modular space monthly rental rates increased 27.2% year-over-year for the six months ended June 30, 2023 to $796 driven primarily by increased pricing on new deliveries; however, average units on rent decreased 12.6% driven by lower demand. Gross Profit: Gross profit increased by $72.8 million, or 30.3%, to $312.9 million for the six months ended June 30, 2023 compared to $240.1 million for the six months ended June 30, 2022. Gross profit on leasing activity increased by $62.4 million year over year, or 27.0%, driven by increased pricing as described above. Delivery and installation gross profit increased $10.6 million, or 47.1%, driven by increased pricing ahead of inflationary cost increases. Sales gross profit decreased by $0.4 million to $2.1 million. Cost of leasing and services increased by $2.2 million, or 2.5%, for the six months ended June 30, 2023 versus the six months ended June 30, 2022, driven by a $3.8 million, or 11.3%, increase in labor costs and a $1.5 million, or 7.6%, increase in vehicle, equipment and other costs, partially offset by a $1.4 million, or 12.5%, decrease in material costs and a $1.7 million, or 6.7%, decrease in subcontractor costs. Cost of sales decreased by $0.2 million, or 4.6%, even as sales revenues increased $1.8 million, or 25.9%, driven by improved sales gross profit margins for six months ended June 30, 2023. These increases were offset partially by increased depreciation of $2.1 million, or 12.9%, as a result of capital investments made over the past twelve months in rental equipment including acquired fleet. Adjusted EBITDA: Adjusted EBITDA increased $65.8 million, or 42.7%, to $219.8 million for the six months ended June 30, 2023 from $154.0 million for the six months ended June 30, 2022. The increase in Adjusted EBITDA was driven primarily by increased leasing gross profit as described above, partially offset by increased SG&A. SG&A, excluding discrete items, increased $8.0 million, or 7.7%, for the six months ended June 30, 2023, as compared to the six months ended June 30, 2022 driven primarily by increased travel and training costs, higher real estate costs, increased salaries, and an increase to the provision for credit losses, partially offset by lower variable compensation. Capital Expenditures for Rental Equipment: Purchases of rental equipment and refurbishments of $12.6 million for the six months ended June 30, 2023 were $41.9 million lower than the prior-year quarter driven by a reduction in new container purchases during 2023 given current utilization and the significant investments made in 2022. Other Non-GAAP Financial Data and Reconciliations In addition to using GAAP financial measurements, we use certain non-GAAP financial measures to evaluate our operating results. As such, we include in this Quarterly Report on Form 10-Q reconciliations of non-GAAP financial measures to their most directly comparable GAAP financial measures. Set forth below are definitions and reconciliations to the nearest comparable GAAP measure of certain non-GAAP financial measures used in this Quarterly Report on Form 10-Q along with descriptions of why we believe these measures provide useful information to investors as well as a description of the limitations of these measures. Each of these non-GAAP financial measures has limitations as an analytical tool and should not be considered in isolation from, or as a substitute for analysis of, results reported under GAAP. Our measurements of these metrics may not be comparable to similarly titled measures of other companies. 41 Adjusted EBITDA We define EBITDA as net income (loss) plus interest (income) expense, income tax expense (benefit), depreciation and amortization. Our adjusted EBITDA ("Adjusted EBITDA") reflects the following further adjustments to EBITDA to exclude certain non-cash items and the effect of what we consider transactions or events not related to our core business operations: • Currency (gains) losses, net on monetary assets and liabilities denominated in foreign currencies other than the subsidiaries’ functional currency. • Goodwill and other impairment charges related to non-cash costs associated with impairment charges to goodwill, other intangibles, rental fleet and property, plant and equipment. • Restructuring costs, lease impairment expense, and other related charges associated with restructuring plans designed to streamline operations and reduce costs including employee and lease termination costs. • Transaction costs including legal and professional fees and other transaction specific related costs. • Costs to integrate acquired companies, including outside professional fees, non-capitalized costs associated with system integrations, non-lease branch and fleet relocation expenses, employee training costs, and other costs required to realize cost or revenue synergies. • Non-cash charges for stock compensation plans. • Other expense, including consulting expenses related to certain one-time projects, financing costs not classified as interest expense, and gains and losses on disposals of property, plant, and equipment. Our Chief Operating Decision Maker ("CODM") evaluates business segment performance utilizing Adjusted EBITDA as shown in the reconciliation of the Company’s consolidated income from continuing operations to Adjusted EBITDA below. Management believes that evaluating segment performance excluding such items is meaningful because it provides insight with respect to the intrinsic and ongoing operating results of the Company and captures the business performance of the segments, inclusive of indirect costs. Adjusted EBITDA has limitations as an analytical tool, and you should not consider the measure in isolation or as a substitute for net income (loss), cash flow from operations or other methods of analyzing WillScot Mobile Mini’s results as reported under GAAP. Some of these limitations are: • Adjusted EBITDA does not reflect changes in, or cash requirements for our working capital needs; • Adjusted EBITDA does not reflect our interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness; • Adjusted EBITDA does not reflect our tax expense or the cash requirements to pay our taxes; • Adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments; • Adjusted EBITDA does not reflect the impact on earnings or changes resulting from matters that we consider not to be indicative of our future operations; • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements; and • Other companies in our industry may calculate Adjusted EBITDA differently, limiting its usefulness as a comparative measure. Because of these limitations, Adjusted EBITDA should not be considered as discretionary cash available to reinvest in the growth of our business or as a measure of cash that will be available to meet our obligations. 42 The following tables provide unaudited reconciliations of Income from continuing operations to Adjusted EBITDA: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Income from continuing operations $ 87,729 $ 60,099 $ 164,000 $ 99,147 Income tax expense from continuing operations 31,565 20,848 62,075 32,931 Interest expense 47,246 33,153 92,112 63,723 Depreciation and amortization 81,796 78,181 158,125 151,091 Currency losses (gains), net 14 (173) 6,789 (36) Restructuring costs, lease impairment expense and other related charges (income) — (95) 22 168 Transaction costs — 22 — 35 Integration costs 2,247 5,193 6,120 9,280 Stock compensation expense 9,348 9,128 17,498 15,401 Other 1,396 2,287 1,442 4,676 Adjusted EBITDA from continuing operations $ 261,341 $ 208,643 $ 508,183 $ 376,416 Adjusted EBITDA Margin We define Adjusted EBITDA Margin as Adjusted EBITDA divided by revenue. Management believes that the presentation of Adjusted EBITDA Margin provides useful information to investors regarding the performance of our business. The following table provides unaudited reconciliations of Adjusted EBITDA Margin: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Adjusted EBITDA from continuing operations (A) $ 261,341 $ 208,643 $ 508,183 $ 376,416 Revenue (B) $ 582,089 $ 522,890 $ 1,147,557 $ 974,061 Adjusted EBITDA Margin from Continuing Operations (A/B) 44.9 % 39.9 % 44.3 % 38.6 % Income from continuing operations (C) $ 87,729 $ 60,099 $ 164,000 $ 99,147 Income from Continuing Operations Margin (C/B) 15.1 % 11.5 % 14.3 % 10.2 % 43 Adjusted Gross Profit and Adjusted Gross Profit Percentage We define Adjusted Gross Profit as gross profit plus depreciation on rental equipment. Adjusted Gross Profit Percentage is defined as Adjusted Gross Profit divided by revenue. Adjusted Gross Profit and Adjusted Gross Profit Percentage are not measurements of our financial performance under GAAP and should not be considered as an alternative to gross profit, gross profit percentage, or other performance measures derived in accordance with GAAP. In addition, our measurement of Adjusted Gross Profit and Adjusted Gross Profit Percentage may not be comparable to similarly titled measures of other companies. Management believes that the presentation of Adjusted Gross Profit and Adjusted Gross Profit Percentage provides useful information to investors regarding our results of operations and assists in analyzing the performance of our business. The following table provides unaudited reconciliations of gross profit to Adjusted Gross Profit and Adjusted Gross Profit Percentage: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Revenue (A) $ 582,089 $ 522,890 $ 1,147,557 $ 974,061 Gross profit (B) $ 327,872 $ 275,213 $ 651,000 $ 509,274 Depreciation of rental equipment 64,450 63,230 123,606 120,778 Adjusted Gross Profit (C) $ 392,322 $ 338,443 $ 774,606 $ 630,052 Gross Profit Percentage (B/A) 56.3 % 52.6 % 56.7 % 52.3 % Adjusted Gross Profit Percentage (C/A) 67.4 % 64.7 % 67.5 % 64.7 % Net CAPEX We define N et CAPEX as purchases of rental equipment and refurbishments and purchases of property, plant and equipment (collectively, "Total Capital Expenditures"), less proceeds from the sale of rental equipment and proceeds from the sale of property, plant and equipment (collectively, "Total Proceeds"), which are all included in cash flows from investing activities. Management believes that the presentation of Net CAPEX provides useful information regarding the net capital invested in our rental fleet and property, plant and equipment each year to assist in analyzing the performance of our business. As presented below, Net CAPEX includes amounts for the former Tank and Pump segment through September 30, 2022 and the former UK Storage Solutions segment through January 31, 2023. The following tables provide unaudited reconciliations of Net CAPEX: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Total purchases of rental equipment and refurbishments $ (55,581) $ (130,153) $ (102,709) $ (225,389) Total proceeds from sale of rental equipment 17,473 20,526 25,254 35,080 Net CAPEX for Rental Equipment (38,108) (109,627) (77,455) (190,309) Purchase of property, plant and equipment (4,453) (9,772) (11,189) (20,253) Proceeds from sale of property, plant and equipment 7 491 265 751 Net CAPEX $ (42,554) $ (118,908) $ (88,379) $ (209,811) Liquidity and Capital Resources Overview WillScot Mobile Mini is a holding company that derives its operating cash flow from its operating subsidiaries. Our principal sources of liquidity include cash generated by operating activities from our subsidiaries, borrowings under our ABL Facility, and sales of equity and debt securities. We believe that our liquidity sources and operating cash flows are sufficient to address our operating, debt service and capital requirements over the next twelve months. We have consistently accessed the debt and equity capital markets both opportunistically and as necessary to support the growth of our business, desired leverage levels, and other capital allocation priorities. We believe we have ample liquidity in the ABL Facility and are generating substantial free cash flow, which together support both organic operations and other capital allocation priorities as they arise. 44 We continue to review available acquisition opportunities with the awareness that any such acquisition may require us to incur additional debt to finance the acquisition and/or to issue shares of our Common Stock or other equity securities as acquisition consideration or as part of an overall financing plan. In addition, we will continue to evaluate alternatives to optimize our capital structure, which could include the issuance or repurchase of additional unsecured and secured debt, equity securities and/or equity-linked securities. There can be no assurance as to the timing of any such issuance or repurchase. If we obtain additional capital by issuing equity, the interests of our existing stockholders will be diluted. If we incur additional indebtedness, that indebtedness may contain significant financial and other covenants that may significantly restrict our operations. Availability of financing and the associated terms are inherently dependent on the debt and equity capital markets and subject to change. From time to time, we may also seek to streamline our capital structure and improve our financial position through refinancing or restructuring our existing debt or retiring certain of our securities for cash or other consideration. Our revolving credit facility provides an aggregate principal amount of up to $3.7 billion, consisting of: (i) a senior secured asset-based US dollar revolving credit facility in the aggregate principal amount of $3.3 billion (the “US Facility”) and (ii) a $400.0 million senior secured asset-based multicurrency revolving credit facility (the "Multicurrency Facility," and together with the US Facility, the “ABL Facility”). Borrowing availability under the ABL Facility is equal to the lesser of $3.7 billion an d the applicable borrowing bases. The borrowing bases are a function of, among other things, the value of the assets in the relevant collateral pool, of which our rental equipment represents the largest component. At June 30, 2023, we had $1.0 billion of available borrowing capacity under the ABL Facility. Cash Flow Comparison of the Six Months Ended June 30, 2023 and 2022 Significant factors driving our liquidity include cash flows generated from operating activities and capital expenditures. Our ability to fund our capital needs will be affected by our ongoing ability to generate cash from operations and access to capital markets. The consolidated statements of cash flows include amounts for the former Tank and Pump segment through September 30, 2022 and the former UK Storage Solutions segment through January 31, 2023. See Note 3 to the financial statements for disclosure of significant operating and investing items related to the former Tank and Pump and former UK Storage Solutions segments. The following summarizes our change in cash and cash equivalents for the periods presented: Six Months Ended June 30, (in thousands) 2023 2022 Net cash provided by operating activities $ 350,920 $ 333,853 Net cash provided by (used in) investing activities 158,477 (313,738) Net cash used in financing activities (520,257) (20,802) Effect of exchange rate changes on cash and cash equivalents 746 (306) Net change in cash and cash equivalents $ (10,114) $ (993) Cash Flows from Operating Activities Cash provided by operating activities for the six months ended June 30, 2023 was $350.9 million as compared to $333.9 million for the six months ended June 30, 2022, an increase of $17.1 million. The increase was due to an increase of $60.9 million of net income, adjusted for non-cash items, partially offset by a decrease of $43.8 million in the net movements of the operating assets and liabilities. Cash Flows from Investing Activities Cash provided by investing activities for the six months ended June 30, 2023 was $158.5 million as compared to cash used in investing activities of $313.7 million for the six months ended June 30, 2022, an increase of $472.2 million in cash provided by investing activities. The increase in cash provided by investing activities was driven by proceeds of $404.0 million from the sale of discontinued operations, a $122.7 million decrease in cash used for the purchase of rental equipment and refurbishments, and a $9.1 million decrease in cash used for the purchase of property, plant and equipment. The increase was partially offset by a $45.5 million increase in cash used in acquisitions, net of cash acquired, a cash payment of $7.7 million for the settlement of the contingent foreign currency forward contract, and a $9.8 million decrease in proceeds from the sale of rental equipment. Cash Flows from Financing Activities Cash used in financing activities for the six months ended June 30, 2023 was $520.3 million as compared to $20.8 million for the six months ended June 30, 2022, a change of $499.5 million. The change was primarily due to a $547.1 million increase in repayments of borrowings and a $137.1 million increase in the repurchase of common stock partially offset by a $174.2 million increase in receipts from borrowings. 45 Free Cash Flow Free Cash Flow is a non-GAAP measure. We define Free Cash Flow as net cash provided by operating activities, less purchases of, and proceeds from, rental equipment and property, plant and equipment, which are all included in cash flows from investing activities. Management believes that the presentation of Free Cash Flow provides useful additional information concerning cash flow available to fund our capital allocation alternatives. The following table provides a reconciliation of net cash provided by operating activities to Free Cash Flow. Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Net cash provided by operating activities $ 202,155 $ 188,326 $ 350,920 $ 333,853 Purchase of rental equipment and refurbishments (55,581) (130,153) (102,709) (225,389) Proceeds from sale of rental equipment 17,473 20,526 25,254 35,080 Purchase of property, plant and equipment (4,453) (9,772) (11,189) (20,253) Proceeds from the sale of property, plant and equipment 7 491 265 751 Free Cash Flow $ 159,601 $ 69,418 $ 262,541 $ 124,042 Free Cash Flow for the six months ended June 30, 2023 was $262.5 million as compared to $124.0 million for the six months ended June 30, 2022, an increase of $138.5 million. Free Cash Flow increased year over year principally as a result of the $17.1 million increase in cash provided by operating activities and the $122.7 million decrease in cash used in the purchase of rental equipment and refurbishments, partially offset by the $9.8 million decrease in proceeds from the sale of rental equipment. The $350.9 million in cash provided by operating activities for the three months ended June 30, 2023 was returned to shareholders through repurchases and cancellations of $456.3 million of stock and reinvested into the business to support the purchase of rental equipment, including VAPS, and refurbishments. Material cash requirements The Company’s material cash requirements include the following contractual and other obligations: Debt The Company has outstanding debt related to its ABL Facility, 2025 Secured Notes, 2028 Secured Notes and finance leases, including interest, totaling $3.0 billion as of June 30, 2023, $14.0 million of which is obligated to be repaid within the next twelve months. Refer to Note 9 for further information regarding outstanding debt. Operating leases The Company has commitments for future minimum rental payments relating to operating leases, which are primarily for equipment and office space. As of June 30, 2023, the Company had lease obligations of $276.4 million, with $63.7 million payable within the next twelve months. In addition to the cash requirements described above, the Company has a share repurchase program authorized by the Board of Directors, which allows the Company to repurchase up to $1.0 billion of outstanding shares of Common Stock and equivalents. This program does not obligate the Company to repurchase any specific amount of shares. As of June 30, 2023, $854.1 million of the approved share repurchase pool remained available. The Company believes its cash, cash flows generated from ongoing operations, and continued access to its revolving credit facility as well as access to debt markets are sufficient to satisfy its currently anticipated cash requirements over the next twelve months. Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition, results of operations, liquidity and capital resources is based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. GAAP requires that we make estimates and judgments that affect the reported amount of assets, liabilities, revenue, expenses and the related disclosure of contingent assets and liabilities. We base these estimates on historical experience and on various other assumptions that we consider reasonable under the circumstances and reevaluate our estimates and judgments as appropriate. The actual results experienced by us may differ materially and adversely from our estimates. For a complete discussion of our significant critical accounting policies, see the “Critical Accounting Policies and Estimates” section in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Annual Report on Form 10-K"). There were no significant changes to our critical accounting policies during the six months ended June 30, 2023. 46 Recently Issued Accounting Standards Refer to Part I, Item 1, Note 1 of the notes to our financial statements included in this Quarterly Report on Form 10-Q for our assessment of recently issued and adopted accounting standards. Cautionary Note Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Act of 1934, as amended. The words “estimates,” “expects,” “anticipates,” “believes,” “forecasts,” “plans,” “intends,” “may,” “will,” “should,” “shall,” “outlook,” “guidance” and variations of these words and similar expressions identify forward-looking statements, which are generally not historical in nature and relate to expectations for future financial performance or business strategies or objectives. Forward-looking statements are subject to a number of risks, uncertainties, assumptions and other important factors, many of which are outside our control, which could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. Although WillScot Mobile Mini believes that these forward-looking statements are based on reasonable assumptions, it can give no assurance that any such forward-looking statement will materialize. Important factors that may affect actual results or outcomes include, among others: • various laws and regulations and recent pronouncements related to laws and regulations governing antitrust, climate related disclosures, cybersecurity, privacy, government contracts, anti-corruption and the environment; • our ability to successfully acquire and integrate new operations; • the effect of global or local economic conditions in the industries and markets in which the Company operates and any changes therein, including financial market conditions and levels of end market demand; • risks associated with cybersecurity and IT systems disruptions, including our ability to manage the business in the event a disaster shuts down our management information systems; • trade policies and changes in trade policies, including the imposition of tariffs, their enforcement and downstream consequences; • our ability to effectively compete in the modular space and portable storage industries; • our ability to effectively manage our credit risk, collect on our accounts receivable, or recover our rental equipment; • fluctuations in interest rates and commodity prices; • risks associated with labor relations, labor costs and labor disruptions; • changes in the competitive environment of our customer base as a result of the global, national or local economic climate in which they operate and/or economic or financial disruptions to their industry; • our ability to adequately protect our intellectual property and other proprietary rights that are material to our business; • natural disasters and other business disruptions such as pandemics, fires, floods, hurricanes, earthquakes and terrorism; • our ability to establish and maintain the appropriate physical presence in our markets; • property, casualty or other losses not covered by our insurance; • our ability to close our unit sales transactions; • our ability to maintain an effective system of internal controls and accurately report our financial results; • evolving public disclosure, financial reporting and corporate governance expectations; • our ability to achieve our environmental, social and governance goals; • operational, economic, political and regulatory risks; • effective management of our rental equipment; • the effect of changes in state building codes on our ability to remarket our buildings; • foreign currency exchange rate exposure; • significant increases in the costs and restrictions on the availability of raw materials and labor; • fluctuations in fuel costs or a reduction in fuel supplies; • our reliance on third party manufacturers and suppliers; • impairment of our goodwill, intangible assets and indefinite-life intangible assets; • our ability to use our net operating loss carryforwards and other tax attributes; • our ability to recognize deferred tax assets such as those related to our tax loss carryforwards and, as a result, utilize future tax savings; • unanticipated changes in tax obligations, adoption of a new tax legislation, or exposure to additional income tax liabilities; 47 • our ability to access the capital and credit markets or the ability of key counterparties to perform their obligations to us; • our ability to service our debt and operate our business; • our ability to incur significant additional amounts of debt, which could further exacerbate the risks associated with our substantial indebtedness; • covenants that limit our operating and financial flexibility; • our stock price volatility; and • such other risks and uncertainties described in the periodic reports we file with the SEC from time to time (including our 2022 Annual Report on Form 10-K), which are available through the SEC’s EDGAR system at www.sec.gov and on our website. Any forward-looking statement speaks only at the date which it is made, and WillScot Mobile Mini undertakes no obligation, and disclaims any obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.